Increase in Defense Budget: The Latvian government decides to elevate the defense spending to approximately 5% of the country's GDP.
The government has unveiled a strategic plan to bolster defence and security funding, aiming to increase spending in this critical area. The plan, which is set to be implemented by 2026, includes a variety of approaches to generate financial resources.
One of the key elements of the strategy is the proposed increase in the general government deficit from 2025-2028. This deficit increase, which is supported by the national exception clause, will provide the necessary funds for additional expenditure.
To reduce gross public debt, the government has proposed divestment of commercial public corporations, some of which are prohibited from privatization under the regulatory framework. The exact corporations to be subject to divestment and the scale of the spending cuts in the general government budget are not specified.
The plan also aims to generate financial resources from 2029 onwards by streamlining public sector functions and providing for the divestment of minority stakes of at least 10% in public corporations through public offerings.
Another approach is the use of European Union (EU) funds for national defence and security needs. The concept of this funding source is supported, but specific details on the exact sources of EU funds are not provided.
In addition, the government plans to leverage revenue from public corporations and explore the possibility of divesting minority stakes, likely as a means to raise capital without direct taxation or borrowing. However, specific details on this are not explicitly described.
The strategy also includes legislative and budgetary measures. The House has advanced an $832 billion defense appropriations bill for fiscal 2026, reflecting congressional support for increased defense spending. Additionally, programs such as the Homeland Security Grant Program allocate hundreds of millions annually for state homeland security efforts.
The Defence Ministry, in cooperation with the Ministry of Finance, will prepare a prioritized list of potential public-private partnership (PPP) projects by July. Although direct references are not available, governments often use PPPs to fund infrastructure and security-related projects efficiently.
Public corporations must submit proposals for possible revenue increases to the State Chancellery by 2 June 2025. These proposals are subject to prior agreement with the shareholder. The corporations are also required to revise their revenue plans for the next three years.
Policy changes, structural reforms, spending reviews, and spending cuts in the general government budget are part of the plan to generate financial resources. These measures will be implemented alongside the other strategies to ensure a comprehensive approach to defence and security funding.
The government held a closed-door meeting on Tuesday to discuss the details of this strategic plan. From 2029, the deficit increase is 0.5% of GDP. The minimum planned structural general government budget balance set by the Fiscal Discipline Law will be reduced.
This strategic plan integrates a combination of borrowing capacity, legislative appropriations, targeted grants, and possibly public corporation revenue and asset divestment, supported by fiscal reforms and potential international funds (EU), to strengthen defence and security financing. However, exact proportions or detailed mechanisms for each source are not fully detailed in the available information.
- The government seeks to utilize EU funds for financing national defense and security needs, although specific sources of these funds remain undisclosed.
- The government aims to generate financial resources from 2029 onwards by streamlining public sector functions, providing for the divestment of minority stakes of at least 10% in public corporations through public offerings, and potentially leveraging revenue from public corporations.
- NATO and other international funds could potentially support the government's efforts to strengthen defense and security financing, as the strategy incorporates a combination of borrowing capacity, legislative appropriations, targeted grants, and public corporation revenue and asset divestment, with exact proportions and mechanisms for each source yet to be detailed.
